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The US Current Account, New Economy Services, and Implications for Sustainability
Author(s) -
Mann Catherine L.
Publication year - 2004
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2004.00448.x
Subject(s) - economics , sustainability , current account , balance of trade , world economy , balance (ability) , income elasticity of demand , macroeconomics , international economics , microeconomics , exchange rate , ecology , medicine , biology , physical medicine and rehabilitation
The paper considers the implications for sustainability of the US current account of widespread uptake of New Economy services around the world. The main contribution is to estimate new income elasticities for international trade in New Economy services and incorporate these in a simple model of the current accounts. Widespread uptake of New Economy services around the world improves the potential for a sustainable US external balance through two channels. First, uptake of New Economy services raises global growth. Second, it narrows the asymmetry in income elasticity of US trade. But, reasonable estimates of these two structural improvements are not sufficient to stabilize the US current account deficit.